The principle of divide et impera (divide and conquer) has been a political staple for centuries and the Commission of Audit’s recommendations regarding higher education are a salient example. Both universities and student bodies are concerned at the sector’s fiscal situation since cuts made by the previous government.

In response, the commission recommends further reducing the average government per-student contribution, increasing the student’s own contribution and opening the door to fee deregulation. The result is to divide the universities’ interests from those of their students. As Glyn Davis, the Vice-Chancellor of Melbourne University, observed last week, “Do public universities walk away from all other options because students will not like the alternatives?”

On the face of it, universities can look to students to provide the funding the federal government says it cannot, or continue to suffer a death from a thousand cuts.

The impact on students: rising costs and reduced returns

The commission recommends decreasing the average proportion of higher education costs paid by the Commonwealth from 59% to 45%, commensurately increasing the average proportion of costs paid by students from 41% to 55%.

Figure 1 below shows the recommended average student contribution compared to current student contributions per funding cluster (or discipline). It is possible, therefore, that the cost to law and commerce students will fall. However it is more likely that the government will achieve the average student contribution proportionately, meaning most will see a rise and at best some will stay as they are. For example, socially-sensitive courses such as education and nursing might be (at least partly) protected.

The commission also recommends that students start paying back their HELP debt when earning the minimum wage of $32,454, compared to the current average wage of $51,309. This, coupled with the proposed changes to the HELP repayment threshold and interest rates, will have a significant effect on student lifetime earnings. This is shown representatively in Figure 2. Students first incur a cost (the area below $0) and then pay it off.

The first impact of the proposed change is to increase the initial cost of education, shifting it from the blue to red line. Furthermore, the student starts paying off the debt earlier while earning less. The rate of repayment also rises as the interest will now be linked to a rate that reflects the full cost to the Commonwealth of making the loan. Currently it is just linked to the Consumer Price Index (CPI).

The result for the student is they start paying off the debt when less able to, pay more and realise the economic benefit of their education (the “payoff”) later in their life.

Figure 2: Impact of the Proposed Changes to HECS-HELP on Lifetime Income.

Future fee deregulation

The changes outlined in the figures above only benefit the government’s bottom line, with the student worse off. For universities it is a zero-sum game as they still end up with the same overall funding per student. Consequently the commission recommends investigating options for further fee deregulation. This is where the divide-and-conquer maxim really hits. Education minister, Christopher Pyne, wants to “set our universities free” by allowing universities to charge even higher fees for premium courses, However freedom for one means, potentially, chains for another, with the additional cost borne by the student and not being eligible for support through a HELP loan.

How high fees would rise is unknown, but current international student tuition fees provides an indication. Australia is already the most expensive country for international study, with average annual fees above $27,000.

Of course not all universities will be able to follow this route, meaning that an elite sub-set of institutions (most likely the Group of Eight) will probably end up offering high-demand, high-value courses at a cost that would make them unobtainable for many students. Key players in the Group of Eight are already on the front foot in this regards, arguing that “top universities should be free to charge domestic students whatever they deem appropriate”. If so, Australia’s relatively egalitarian, mass education system will become a more hierarchical and, in some cases, excluding one.

Pyne has already encouraged Australian universities to adopt the “competitive nature of American tertiary education”. He is silent, however, on whether the government would provide many more scholarships for low-income students, as is the case in the US, or whether Australian universities would be required to provide increased student financial aid where necessary.

The first step to a voucher system?

The commission also recommends “streamlining the five current HELP schemes”. The explicit aim is removing SA-HELP, which assists students to pay for their student services and amenities fee.

However, this recommendation might also represent the initial attempt to move towards an eventual flat rate for Commonwealth contributions. This would create, essentially, an education voucher system, championed by free-market economists as a means of improving competition and efficiency, usually at the school level but in this case for higher education.

It would also make certain courses (e.g. law) more attractive to universities due to their low cost of delivery and others (e.g. agricultural sciences) less attractive. Coupled with fee deregulation, this would result in many students finding their higher education opportunities restricted to fewer courses and/or fewer universities.

Is there another way?

As some commentators have observed, the Commission of Audit has simply produced the report demanded by the government. There are alternative funding models and mixes, some of which are outlined here. Not all create conflict between universities and students.

It is hoped that, in the ensuing months, detailed options will be put forward that demonstrate it is possible to increase funding to higher education in real terms, without the impost being unfairly borne by those least able to shoulder the burden.

Funding dominated the schooling space in 2017, with both sides of politics debating whose funding package benefited which schools the most, and little attention paid to how the money is best spent.
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